A Reverse Mortgage for Less

The Home Equity Conversion Mortgage program charges lower upfront fees.

If you've made the decision to take out a reverse mortgage and can meet your needs with the lower amount offered under the HECM Saver, then go for it. The new HECM Saver is always less expensive than the new HECM Standard. But if you need to borrow the maximum available to you, then you'll now pay considerably more for the new HECM Standard than you would have for the old HECM Standard.

The HECM Saver also makes sense when you want to take out only a small loan, say to redo your kitchen, or you don’t plan to stay in your home for very long. The upfront insurance premium is substantially less than what’s charged for a HECM Standard — 0.01 percent versus 2 percent , you’ll recall — and the ongoing premiums (at 1.25 percent) will only accrue for a relatively short time.

"If someone only needs to borrow a small amount and knows they will be moving in a couple of years, the HECM Saver may make sense," Redfoot says. "The HECM Saver is less expensive if you take small loans for short periods."

And if your house is worth a lot, then you stand to benefit even more upfront from the HECM Saver. Let’s say your home is valued at $550,000. Eliminating the 2 percent upfront insurance premium will save you nearly $11,000.

Reverse mortgage basics

Ultimately with a reverse mortgage, the amount you get is based on your age, current interest rates and the appraisal of your home. The older you are, in general, the more you receive. To qualify for a reverse mortgage, you have to be at least 62 years old, and any outstanding mortgage balance must be less than the loan amount that can be received by a HECM, since other liens must be retired as a condition of the loan.

With a reverse mortgage, you won’t undergo a credit check or have to have a specific amount of income to qualify. You’ll need to go through a HUD counseling session, which provides helpful information about reverse mortgages and alternatives you should consider before taking out a loan. While you don't have to worry about making monthly mortgage payments, you're still be responsible for keeping current on real estate taxes and homeowners insurance premiums.